Reddit Inc. (NYSE:RDDT) was down about 8.0% on Friday, after Tencent Holdings sold about $88.5 millions shares of the social forum network.
This weakness could also be linked to reports that Advance Magazine Publishers was considering trimming their position on Reddit.
There are still three good reasons to buy Reddit shares during the recent drop. We’ll look at them one by one.
Reddit’s stock is supported by strong financials
Reddit is already making a profit, even though the company has only been public for a little over a year.
The forum social network has attracted users in an unprecedented rate. The number of daily users increased by 47% year over year to reach 97.2 millions in Q3.
This is important because more users are likely to bring more advertisers onto the platform, and this will drive up the bottom line of the company in the next quarters.
Reddit’s latest report showed that it had surpassed Street expectations for every metric. This company beat all expectations in the third quarter.
This speaks volumes for the current state of the business, and the potential future prospects of Reddit’s stock.
RDDT can benefit from AI tailwinds
Reddit’s stock may be trading at a premium, but this could continue as RDDT has a unique position to profit from the AI frenzy.
It’s not just stealing X (formerly Twitter)’s ad spending, but also selling big data and helping to train large language models.
Reddit has already signed deals with Google and OpenAI. It is likely to sign similar agreements with other companies as more users register for its platform in the coming quarters.
Statista has estimated that the artificial intelligence (AI) market will grow at a rate annualized of 28% by the end of the decade, which is a confirmation of AI’s potential as a tailwind.
Reddit does not pay dividends.
Reddit caters to an international audience
Reddit also uses artificial intelligence for translating the vast amount of information on its social forum network to other languages.
This exposes the company to an international market and allows it to grow into a much bigger platform in five years. Steve Huffman, the chief executive of the company told investors last month in the earnings release:
Reddit is one of the largest and most trusted websites in the world. We have access to opportunities that most other companies don’t.
Wall Street has given Reddit stock a “overweight rating” which suggests that they still see more upside in the future despite this massive run.
The post Top 3 Reasons Why I am buying Reddit Stock on Recent Weakness may be updated as new information unfolds.
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